Disappointment at government hasn’t eroded support among businesses: academic

The disappointment at the current government’s sluggish economic reforms has not eroded the support among businesses, according to a Mandalay and Bangkok-based academic. On the contrary, businesses are worried that a failure of the administration will roll the country back to the junta era.

The Myanmar Times talked to Pietro Borsano, lecturer at Mandalay International University and Shinawatra International University, who teaches international management and business law. Mr Borsano is also a lawyer.

Given the delays and widespread inaction, it is fair to say that the National League for Democracy-led government’s second year in office is disappointing in terms of the economy, he argued.

“Earlier, I was talking to a director of a large-scale, listed Thai conglomerate and she expressed her concern about the notorious inefficiency of the Myanmar government,” he said, adding that a lot of time was spent on negotiations between the civilian and military blocs within the leadership instead of carrying out reforms.

However, the disappointment among the private sector, the academic stressed, does not mean support for the government is chipping away.

“On the one hand, support for the civilian rule is still widespread in the country. All the businessmen I’ve spoken to still back the civilian government.

“On the other hand, the local business community acknowledges that the government isn’t keeping the promise of delivering economic reforms and economic growth effectively.

“There is a mix of disappointment, but there is also a fear that a failure of this government risks throwing the country back to military rule,” Mr Borsano highlighted.

International and domestic investors have set the bar of their expectation towards the current government too high, he went on. The administration is unable to respond effectively to the demands of businesses partly because the political leadership does not have sufficient experience in governing. Such problem is not unique to Myanmar but also applies to European countries and elsewhere. This is the underlying obstacle leading to the exits of Japan’s biggest airline, an American law firm, a London law firm and, reportedly, South Korea’s Samsung over the last fiscal year. Samsung has not responded to multiple requests for comment but a Korean investor based in Myanmar has confirmed the account.

The solution, the academic suggested, is for the government to focus on implementing actual reforms by tapping into the expertise of consultants, lawyers, professionals and academics in respective areas.

“Implementation should be the first and foremost priority for Nay Pyi Taw and regional governments. Many of the economic challenges have to be fixed through an effective management,” he explained. The effort should be placed on the executive side, and not just on discourse or the legislative aspect.

A decade before investments will pay off

The new Companies Law, which will be implemented in August, is expected to bring in foreign expertise and technological know-how. The delay in its implementation is likely to reduce incentives among foreign businesses to invest in the country. To make up for this, the government should come up with effective policies to support local small and medium-sized enterprises (SMEs).

Mr Borsano argued that the Myanmar market is still very nascent and investments have to be long-term, five to 10 years down the line, unless the investment can fulfill an existing demand.

“The director of that Thai conglomerate told me that her firm has decided to only develop one of their business lines in Myanmar because that line is directly relevant to the market demands, regarding power utility and waste water management. For all other lines, they are aware that Myanmar isn’t ready yet and it will only be ready in the long run. Hence, for the rest, the company decided to invest in Vietnam instead, where the infrastructure and regulatory framework are more sound and supportive of investments.

“My warning to foreign investors is the following: either you are ready to meet an existing market demand or you should be prepared to suffer for the next five to 10 years, before your business starts to pay off,” he observed.

The country is well-placed in the long run for investments but the bureaucracy needs to be streamlined and simplified. Within ASEAN, Thailand and Malaysia have an edge as the destination for international firms to settle down because of their business friendly environment. Myanmar, after all, is still a frontier market.

Myanmar will launch its first credit bureau within the next month, President U Win Myint said during his Myanmar New Year speech last week. Mr Borsano said, on top of that, further reforms and liberalisation of the banking and finance sectors are urgently needed.

“The bank interest rate has been recently transformed from 8.5 percent to a still sky-rocket high 8pc annually for saving accounts. This doesn’t make it attractive for savers to invest anywhere else than in saving accounts.

“If SMEs would like to borrow money, the interest rate is 10-13pc, which is extremely high. Only if the government addresses these issues will SMEs be able to grow.”

Foreign banks should be allowed to operate in Myanmar and the financial market should be liberalised extensively, enabling more loans to be offered to local businesses. SMEs are throttled owing to poor access to finance. At the same time, the Yangon Stock Exchange needs to be revived to serve as an avenue where businesses can raise capital. One way of doing so is to allow non-Myanmar customers to take part.

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